Obama budget would end oil industry tax breaks, hike royalites

In unveiling his $3.8 trillion spending plan for the U.S. government on Wednesday, President Barack Obama revived his longstanding attack on oil industry tax breaks and formally launched a plan to pay for alternative vehicle research with drilling dollars.

The fiscal 2014 budget proposal aims to raise $2.5 billion over the next decade by raising the royalty rates for oil and gas produced on federal lands and waters, with the revenue steered toward a new Energy Security Trust for research in alternative fuels and vehicles.

Jack Gerard (Official photo)

American Petroleum Institute President Jack Gerard said the move is shortsighted, especially since a single sale of offshore drilling leases can net more than $1 billion just in bids to buy drilling rights — even before the royalty payments from oil and gas that might be produced on the acreage.

“What we’re seeing come out of the president again is the same old tired approach that he’s taken before,” Gerard said. “The president is talking about jobs and revenue, yet the proposals related to energy hurt job creation and limit revenue by discouraging the very activity that generates revenue.”

The administration says Obama’s budget would save $39 billion over the next 10 years by eliminating “fossil fuel tax preferences” geared toward oil, gas and coal. Items on the chopping block include the oil industry’s ability to claim a domestic manufacturing deduction broadly available to other sectors, and write off “intangible drilling costs” such as site preparation, hauling supplies and fluids used in the process.

Virginia Lazenby, chairwoman of the Independent Petroleum Association of America, said the proposed tax changes would pare the capital oil and gas companies can invest in new wells.

““Independent oil and natural gas producers currently reinvest 150 percent of their capital budgets into new energy projects, and by doing so, they keep the economy moving,” said Lazenby, who is also the CEO of Nashville-based Bretagne LLC. “The tax treatment is crucial to the business decisions of these companies.”

And Rep. Gene Green, D-Houston, insisted it was unfair to single “out the oil and gas industry for tax hikes (that) would only stifle job creation and drive up imports of crude oil from foreign nations that are hostile to us.”

But advocates of the president’s proposal say the oil and gas tax incentives — some nearly 100 years old — have outlived their usefulness.

“These companies earned billions of dollars in recent years due to high oil and gasoline prices and do not need additional support from taxpayers,” said Daniel J. Weiss, the director of climate strategy at the Center for American Progress. “Now that the oil and gas industry is fully developed and mature, President Obama’s budget would end this center of largess.”

The administration also proposed establishing new “use-it-or-lose-it” style fees on undeveloped oil and gas leases, while shortening the duration of those contracts.

A separate proposal for new user fees on federal oil and gas leases is designed to offset some $40 million in federal inspection of work on those tracts.

Under Obama’s proposal, $672 million would be devoted to oil and gas programs at the Interior Department, including $169 million for the Bureau of Ocean Energy Management and $222 million for the Bureau of Safety and Environmental Enforcement — the two agencies that oversee offshoree leases and development.

At the Bureau of Land Management, a proposed increase of roughly 20 percent, “will expand inspection and enforcement capabilities, enhance oversight, streamline permitting and support implementation of the BLM’s leasing reforms,” said Deputy Interior Secretary David Hayes.

Hayes said the money especially would help accelerate a conversion to electronic permitting, which could eliminate “the slow back and forth between companies and BLM.” Roughly three quarters of the permitting processing time is attributed to that paper-based interaction, so a computerized process would go a long way to speeding the work up, Hayes said.

Across the president’s proposal, the administration is making plans for research on climate change and programs to help adapt to the phenomenon. For instance, at Interior, Obama is seeking $71 million — a $13 million increase — in climate change research, mostly done by the U.S. Geological Survey. The Interior Department also would get $64 million — a $5 million increase — to enable land and wildlife managers to adapt to changes.

At the Environmental Protection Agency, funding would be used “to support local community efforts to improve resilience to extreme weather and other climate change impacts.”

“These efforts are consistent with a broader administration commitment to help communities improve their resilience to climate change through direct technical assistance, useful data and tools on projected impacts,” the administration said in its budget plan.

Obama also is asking Congress to require that effective in 2014, energy companies pay a penny a barrel more than the 8 cents they pay now into a trust fund set aside for tackling oil spills. The 2010 Gulf of Mexico spill sparked similar calls that never advanced on Capitol Hill.

And the administration’s budget proposal asks for a more expansive definition of what types of crude production require payments into the trust fund, since the fee isn’t charged now on deposits extracted from kerogen-rich rock or from oil sands bitumen now harvested in Canada.

The definition has drawn attention as the State Department considers whether to issue a permit for TransCanada Corp.’s proposed Keystone XL pipeline that would carry oil sands products to Gulf Coast refineries.

The recent spill from Exxon Mobil’s Pegasus Pipeline in Mayflower, Ark., which carried tar sands crude, has drawn further attention to that issue.